Experts said after bugs had been ironed out and investment put in place, prices of food items such as lentils and fruits could go down by at least 75% .Debasish Roy | ET Online | February 01, 2016, 19:42 IST

NEW DELHI: The population of India has more than doubled from 684 million in 1981 to 1.25 billion in 2011 in just 30 years. This is a frightening pace of growth.

Compare this with other parts of the world. Look at the population growth of Europe, United States, South America and Africa during this period. Europe was at 682 million in 1981 and grew to just 736.3 million in 2011. That's a growth of less than eight per cent in 30 years. The United States grew 229.5 to 311.7 in the same period - a clear growth of just 35.81 per cent. This, for a country loaded with social security benefits.

A relatively unplanned stretch of South America was at 246.8 million in 1981 and grew 62.6 per cent to 401.42 million in 2011. The whole of the continent of Africa was inhabited by 489.97 million in 1981 and grew to 1.07 billion in 30 years in 2011. This is a growth of 118 per cent for a land mass many times larger than India.

Meanwhile, all by itself India clocked a growth of 82.7 per cent in 30 years.

This exploding population needs food, sanitation, decent dwellings, access to education and healthcare in every part of the country.

The good news is that we have all of that; the bad news is that it is not readily accessible by everyone in this country.

Ready access to a good life for all income levels requires a high level of management of resources by the welfare state and also empowerment of the private sector. Both elements are missing in India.

However, recent legislation and efforts by the government are making the silver lining slowly appear out of the mess that the welfare state is currently in. We have found Harsimran Kaur Badal, the minister for food processing launching 270 new food processing parks; Radha Mohan Singh, minister for agriculture launch electronically connected mandis where trading is virtual and Arun Jaitley, minister for finance, trying his level best to get the GST bill passed in parliament.

So, how will these three initiatives by the state connect on the ground through the new Goods and Services Tax bill is yet to be passed by Parliament into law? As and when India implements the GST, Gaurav Jain, Managing Director, Coldex Logistics Private Limited feels, "an additional 25 per cent of the warehousing capacity in India will automatically be optimized."

The Coldex chief feels that the melting away of state borders post GST implementation will enable warehouses to be closer to the last mile deliveries for all perishable products such as food items and reefers (refrigerated cargo containers) will be of various sizes and much more numerous, flitting about their business all around the country and in every city possible.

According to Arunn Panchal, CEO, Cnet Host (India), a company creating backend software for logistics companies, "GST will act as an umbrella which will bring the central sales tax component and the state VAT components of output Value Added Tax for any manufactured goods being sold in a state other than the state where it is manufactured. "

Panchal explains, "Traders have to fill in a Form 32 to apply for exemption of state VAT and for payment of only the central sale tax when they receive the goods from the manufacturers across the border. This gives rise to lots of paper work and delays across the state borders."

With information technology and automation of taxationnetworks, it is possible for the Centre to collect GST when the goods leave the factory and then pay the components of tax to various states.

For instance, Ford cars and Monginis cakes made in Chennai will be taxed in Chennai before they leave their respective factories and the trucks carrying them will move seamlessly to the markets of Bengal for the cakes and the markets of Delhi and Punjab for the cars.

All taxes such as octroi, education cess, output VAT, central sales tax, service tax etc will be obliterated and one single tax will be collected once by the Central government. The onus of collecting tax will be on the Centre and the tax payer or the manufacturer and channels such as distributors and retailers will not be hounded at a later stage for proving that tax has been paid.

Therefore, border check points will disappear and GST will immediately bless our fruit, dairy, vegetable and meat markets with that elusive Holy Grail that is missing today by a wide margin: economies of scale. Moreover, trucks with reefers will move in and out of states through borders, which will be absolutely porous. Long queues at check points handing over a few Rs 500 currency notes to ease passage will be a thing of the past.

Unhindered movement of goods will bring in investment in cold chain and then e-mandis will become more active in trading of this excess stock of food products and further bring down prices. Food processing parks will take on this inventory in an organized manner to be ultimately delivered to the customer.

Dr Rajneesh Mahajan, an expert on supply chain from the Georg-August University Goettingen, Germany laments that with companies such as Mother Dairy and Amul, sometimes the cost of cold chain is greater than the revenue realized from the sale of the perishable goods.

"Milk and other dairy products are spoilt with the lack of properly functioning or badly used reefers and then delivered to a retailer who stacks them out in the open sun."

He adds: "The results are usually owing to cutting of corners such as switching off the refrigeration by drivers of the trucks to save diesel, thus exposing the perishable goods to bacteria during most of the 36 to 80 hour journeys by road."

This highly unorganized, chaotic world of cold chain needs massive amounts of investment of financial capital, intellectual capital and management capital to carry it through to the next level of satisfying the needs of a new world India.

Gaurav Jain, Managing Director and CEO, Coldex, a cold chain service provider company

However, Pawanexh Kohli, Advisor, National Centre for Cold Chain Development clarifies that investment in cold chain and movement of agricultural goods are not directly related as there is currently no VAT on agricultural produce. Says he, "Companies transporting processed foods and other perishable goods are obliged to maintain warehouses outside the state border just because of the absence of GST and the enforcement of taxes just before entering a state border. GST will definitely tick off that node in the logistics loop."

According to the players and experts EconomicTimes.com spoke to, most were of the opinion that after the bugs had been ironed out and the investment put in place, prices of food items such as lentils and fruits could go down by at least 75 per cent all year round.

In fact, some like Arunn Panchal feel packaged daal could be available for Rs 20 a kilo and nitro packed shrink wrapped mangoes between Rs 5 a kilo and Rs 10 a kilo.

Today, world famous langda mangoes are picked in their raw state from Malihabad in Uttar Pradesh and transported in wooden crates nestled in a straw bed to keep out the moisture. While on the way, the raw mangoes and bananas are exposed to some unhealthy carbide gas to make their skin appear ripe to the uninformed customer.

All this is done not because the farmer and the retailer are willing to compromise your health, but because it is impossible to transport a fully ripened fruit to a city 1,000 kilometers away without turning it into sludge when it reaches its destination.

Gaurav Jain, managing director of DCP India Private Limited, an exporter of agricultural products, who shares the same name of the Coldex chief talks about a mine of opportunities in Russia and other CIS countries for rice, potatoes and fruits to be exported only to deny such opportunity as currently his company has no means to transport such large quantities of food from the fields in Uttar Pradesh, Haryana and Punjab to the ports on the western coast.

"We once exported 30 per cent of the total quantity ordered by Russia but could only get paid for 15 per cent as the rest got spoiled on the way and became unfit for consumption," Jain reveals this unpalatable truth.

By this count, more than 55 per cent of all perishable food items in India get spoiled and are rendered inedible or poisonous till they reach their destinations.

To rectify this situation, India is looking at an investment to deploy at least 10 million reefers around the country. Besides those cold boxes, there have to be at least one million new and functioning refrigerated warehouses in place, which are capable of doing minus 25 Celsius to plus five Celsius all year round.

These warehouses should have electronic logs accessible by the customer online sitting anywhere in the world and able to detect the slightest change in temperature of his or her goods stored within that warehouse. This builds an aura or certainty and trust for the customer who consequently wishes to do more business with Indian companies in Indian markets.

How about more chicken legs shipped in refrigerated containers from Brazil and USA where chicken breasts are sold at a premium and chicken legs ignored enough to be sold off to the third world?

How about that excess vegetable oil lying unused in Canada's and Australia's warehouses to be shipped at a good price to India to be used for that evening samosa snack and that morning chole bature?

With the total absence of cold chain logistics, India experiences a lot of wastage in food. The average agricultural land holding size owned by the Indian farmer is 3.1 hectares, which is not enough to reach economies of scale right at the farm level.

Cooperative or corporate farming is not practiced in India. Therefore, the concept of e-mandis and readily accessible facilities of food processing parks across India may make things easier to bring cold chain investment into India.

Players such as Wal-Mart excel in this logistics. However, after their joint venture with Bharti Enterprises took off, they went heavy on packaged or dry food items and were just doing test runs on fish and poultry.

In fact, Bharti Wal-mart's EasyDay outlets had become famous for selling off fish stocks going stale at half prices very often.

Today, that joint venture lies undone with Wal-Mart having sold their stake to Bharti and Bharti Enterprises having found a new partner in Kishore Biyani's Future Group.

It is notable that neither the Future Group nor Bharti Enterprises have invested in any notable manner into cold chain.

In fact, cold chain investment can be received by existing players such as Coldex who feel that the management capital required is how one trains their drivers and their other employees. The foreign direct investment into cold chain will induce highly competitive logistics services which will further push down the cost of food and make it accessible and affordable to India's growing population.